SMD sells self-storage management software products
(SiteLink) and sued U-Haul and several subsidiaries for defamation, unfair or
deceptive trade practices, product disparagement, and violation of the Lanham
Act based on alleged misrepresentations about SMD’s software on comparison
charts used in brochures for a competing software program, WebSelfStorage.
Defendants moved to exclude SMD’s expert Dr. Putsis, a
professor of marketing at UNC’s business school, who conducted a survey on the
impact of the comparison charts and concluded that the 2008 comparison caused
SMD to lose a specific amount of business.
The survey gave respondents a table detailing the prices and features of
15 hypothetical software programs. Some
reflected the description of SMD’s programs given in the 2008 chart, while
others reflected SMD’s preferred descriptions of its programs’ pricing and
features.
The court excluded the testimony because Putsis made too
many assumptions, including the assumption that every customer who read the
charts would have based a purchasing decision on them. The survey forced respondents to choose based
solely on the table, but that wasn’t an accurate reflection of the actual
market. The survey respondents were
given “an apparently objective and trustworthy comparison table,” but the real comparison
charts were in the back of EMove brochures and were clearly advertising, which
is often viewed with skepticism. The
survey didn’t allow respondents to opt out or say they wanted more information,
but SMD’s other expert testified that a commercial buyer wouldn’t make a quick
decision on software of this type. There was no record evidence that Putsis’s
assumption that all buyers who read the chart would rely on it exclusively in
making a decision. Putsis noted that if the ads didn’t work, there’d be no
reason for EMove to distribute them. “There
is a large unsupported leap, however, from evidence that an advertisement is
effective to concluding all customers who read it exclusively relied on it in
making a purchasing decision.” Thus, the conclusion of a specific percentage
loss of market share was based on speculative assumptions not supported by the
record and was excluded.
SMD argued that it was just using the survey to show
materiality, but it was also seeking actual damages, which requires showing
causation; the expert report wasn’t limited to materiality. Anyway, the same
flawed assumptions undermined the survey’s reliability for materiality—the chart
was neutral-looking and not presented in context. The assumption that the charts would be used
to make purchase decisions begged the question of the impact of the charts.
SMD also offered Dr. Didow, an associate professor of
marketing at UNC’s business school, as an expert on damages. He concluded that the charts caused/will
cause $40 millino of lost profits from 2005-2024, and $250 million in profits
for defendants. He also concluded that
the statements at issue were false and not in compliance with substantiation
standards; the last opinion was as potentially confusing, given that lack of
substantiation wasn’t enough to violate the Lanham Act. But SMD argued that failure to substantiate
could be evidence of willful and wanton conduct relevant to awards of
attorney's fees or punitive damages, and the court agreed, but said it would
carefully scrutinize the testimony under Rule 403.
As for Didow’s claims of falsity, the court found a lack of
fit between Didow’s marketing expertise and the truth/falsity of the claims
about SMD’s software. His specialized
knowledge didn’t relate to software or the self-storage industry, and he relied
on SMD’s representations about the price of the products; his other opinions on
falsity were formed by spending several hours reviewing training materials,
seeing product demonstrations, and using plaintiffs' product. This wasn’t enough to make him an expert in a
way that would assist the trier of fact on falsity. Even if a few hours’ use would make the
falsity apparent, that would just mean that falsity wasn’t an area where expert
testimony would be helpful: SMD would simply have shown that no special
expertise was required to determine whether its products had certain
functionalities. This testimony was
excluded.
Though Didow wasn’t an accountant or economist, he was
qualified to opine on damages given his background in marketing; he’d used “identical
tools” as those used to calculate damages in a business loss case in his own econometric
studies.
Defendants argued that Didow’s testimony on damages was
unreliable because it was based on unsupported assumptions that the charts were
the only factor that could explain the parties’ revenues (and other
assumptions). Expert opinions should be
excluded when they’re based on speculative and unsupported assumptions. Courts may also consider whether an expert
adequately accounted for obvious alternative explanations. Didow considered other factors that could
cause reality to diverge from his projected revenues, including changes in
marketing efforts, problems or successes in the products, macroeconomic
factors, industry consolidation, and senior personnel change. He concluded that these factors didn’t
explain the parties’ revenues while the charts were in use; this was enough
given that defendants could challenge his testimony by cross-examination and
presentation of contrary evidence. The
other critiques also failed to show that the testimony should be excluded
instead of cross-examined.
Didow also made an alternative damages calculation multiplying
SMD’s supposedly lost revenues by defendants’ annual revenue per customer for
15 years (the product life cycle he used based on other management software). A successful plaintiff can recover a
defendant’s profits from false advertising.
But Didow’s damages calculation—multiplying SMD’s lost customers by
defendants’ per-customer revenue—wasn’t a method found in the statute, and he
admitted that not all of SMD’s lost customers went to defendants. So this was excluded.
Defendants further objected to Didow’s references to a
sticker added to the 2008 chart clarifying a definition, which he opined showed
that they knew the term was confusing and misleading. But evidence of remedial measures isn’t admissible
to prove culpability. References to the sticker were excluded, as were other
opinions about defendants’ state of mind/intent or motive. However, references
to U-Haul v. Jartran weren’t entirely
irrelevant; SMD argued that it was relevant to whether defendants acted
willfully and wantonly in comparative advertising given that they knew the
standards from being a party in Jartran. Thus, Didow could testify about Jartran, but not about the amount of
damages awarded in that case.
SMD moved to exclude defendants’ expert Litton, a
self-storage management consultant with over thirty years’ experience in the
self-storage industry. He’d managed over
150 facilities and was operations manager for a large self-storage company, and
was currently owner/manager of 15 self-storage properties. He opined on truthfulness, reliance on the
charts, and matters relating to Didow’s damages analysis. Experience alone may
qualify an expert if the expert can explain how that experience leads to the
conclusion reached, why that experience is a sufficient basis for the opinion,
and how that experience is reliably applied to the facts. His experience with plaintiffs’ products,
including using their software in operations and audits and configuring it for
his clients after purchase, was sufficient basis to opine on the truth of
defendants’ claims. Likewise, his extensive experience in consulting and
helping clients decide which software to purchase qualified him to opine as to
what clients consider in making their purchasing decisions. Further, his
challenges to the damage analysis that were based on his experience in the
industry were allowable, though his opinions based on conclusions about the
software industry (e.g., that the numbers in SMD’s financial statements were
too low) weren’t supported by his expertise.
The court also largely rejected challenges to another expert’s
opinions criticizing Didow.
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